A Stunned Wall Street Responds To Apple And Google’s Stellar Earnings

At a time when the “big four” mega tech companies are in the public spotlight for anti-trust, anti-competitive behavior, watching their collective market cap explode by a quarter trillion dollars may not have been the most prudent outcome. But that’s what happened when Apple, Amazon, Facebook and Google reported generally blockbuster earnings last night, sending the price of the first three stocks higher by at least 5% in the premarket, and pushing the collective market cap of the four gigacaps to nearly $5 trillion.

Below we summarize Wall Street’s reactions to Apple and Google’s earnings which were broadly indicative of the mood set by big tech last night, and which has carried over into this morning’s futures:

Apple:

Apple shares are poised to open at a record level following second-quarter results that prompted multiple price-target increases from Wall Street analysts, and reassured that the iPhone-maker’s business was weathering any impact from the pandemic. Apple’s shares jumped 6.3% in U.S. premarket trading, putting the stock on track to open at $409, above the all-time high of $394 reached just last week. Analysts at Goldman Sachs said that they had underestimated how much people were spending to support their working and studying from home, as well as the amount of cash that had been freed up as consumers cut back spending on areas like entertainment and gas. Piper Sandler analysts said they see further strength for Apple’s business, which should benefit from the launch of its new 5G-enabled iPhone, expected later this year.

Google:

Alphabet Inc. shares dipped in premarket trading on Friday, after the Google-parent reported its first-ever decline in revenue, pressured as the pandemic weighed on digital advertising. The company said that ad sales were picking up again by the end of the quarter, but the comments failed to excite, especially in comparison with earnings seen at other major internet and technology stocks, like Facebook Inc., Amazon.com Inc. and Apple Inc. RBC Capital Markets wrote that the quarter showed a “recovery in moderation,” adding that “fundamentals were clearly weak” due to the pandemic. While analysts see a steady recovery in the digital ads market, prompting a number of firms to raise their price targets, Susquehanna cautioned that a full recovery “will only come when the economy begins performing better.” Shares fell 0.9% before the bell. Based on its most recent close, Alphabet’s stock is up more than 45% from a March low. Morgan Stanley, Brian Nowak

Courtesy of Bloomberg, here’s what analysts are saying about Apple’s earnings:

Piper Sandler, Harsh Kumar

• The most notable item in Apple’s June quarter results was the business holding up “extremely well,” with the pandemic having little impact on the core business.
• Next fiscal year appears to be a “banner year” for Apple as the firm will benefit from the delayed 5G iPhone launch falling in the December quarter.
• Kumar raised his price target to $450 from $310 and reiterated his overweight rating.

Cowen, Krish Sankar

• Apple’s June quarter results are “robust” and its outlook is “encouraging.”
• While there was no formal September guidance, positive iPad and Mac momentum and encouraging back-to-school trends are expected.
• Sankar raised his price target to $470 from $400 and reiterated his outperform rating.

Goldman Sachs, Rod Hall

• This is a “very strong” quarter for Apple as consumers and institutions were clearly spending even more than expected to support both work-from-home and study-from-home.
• Also likely underestimated short-term impact of stimulus and disposable income freed up by lack of spending on things like entertainment and gas.
• “This is a quarter to give Apple credit where credit is due for excellent execution and performance in the midst of unprecedented difficulty,” Hall said in a note.
• However, continues to believe caution is warranted looking into 2021.
• Hall raised his price target to $314 from $299 and kept his sell rating.

Raymond James, Chris Caso

• June was “significantly better” than expectations for Apple as the impact on demand from the pandemic improved more quickly than expected.
• Apple did admit “somewhat surprisingly” to new iPhone availability “a few weeks later” compared to last year, which Caso expects will serve to push iPhone revenue from Sept. to Dec.
• Caso raised his price target to $440 from $400 and reiterated his outperform rating.

Deutsche Bank, Jeriel Ong

• While Apple’s decision not to provide a forward-quarter guidance could be interpreted as a sign of uncertainty, Apple did provide more segment commentary.
• Apple also guided to select line items more within its control.
• Positives outweigh the minor negatives in the quarter, while Apple’s confidence that trends continue into the Sept. quarter could understate the reality that they could actually strengthen.
• Ong raised his price target to $440 from $400 and maintained his buy rating.

And here is Google:

Morgan Stanley, Brian Nowak

• Overweight, PT to $1,760 from $1,700
• Alphabet’s ad recovery “is progressing largely in-line with our expectations,” though it “remains slower than [Facebook]” given Alphabet’s size, exposure to travel, and growth in social-media e-commerce
• Any structural reduction in opex or capex could “translate to material earnings power”
• The stock is a “strongmulti-year compounder”

RBC Capital Markets, Mark Mahaney

• Outperform, PT raised to $1,700 from $1,500
• The results showed a “recovery in moderation”
• While most metrics came in ahead of consensus expectations, “fundamentals were clearly weak and negatively impacted by COVID”
• Fundamentals are stabilizing, but the Alphabet’s management “remains cautious for [the second half of the year] on macro uncertainties”

Susquehanna Financial Group, Shyam Patil

• Positive, PT to $1,850 from $1,550
• Advertising trends improved throughout the quarter, and “barring an unexpected turn for the worse in the macro, GOOGL should continue to steadily recover” over the rest of the year
• A full recovery “will only come when the economy begins performing better”
• The stock should see tailwinds from Alphabet’s cloud business, expense management, “a more shareholder-friendly capital allocation approach,” and the long-term growth in digital ads, especially from YouTube and mobile search

Baird, Colin Sebastian

• Outperform, PT raised to $1,675 from $1,650
• The results “keep us constructive at current levels,” especially as online advertising trends improved in May, June and into July
• Growth in the company’s cloud business “remained stable even as competitors decelerated a bit”
• The company has “multiple levers of growth within online advertising, video, commerce, cloud and ‘other bets’”

Bloomberg Intelligence

• The company “continues to be carried through a muted ad climate by cloud’s robust momentum,” along with growth in YouTube and productivity tools
• If this quarter ends being the worst, in terms of its pandemic impact, “extended improvement in July could aid recovery optimism and boost 2H consensus”